and Development Studies, instructor, for his lecture given about technical writing that helps a lot to this research. • To Mrs. Ludivinia Victorino, Department of Accountancy Chairperson who

given the task to this kind of research. And guide as in making this paper. • • • • To my parents who gave moral and financial support for doing this paper. To my friends and classmates To other sources And lastly to God Almighty who gives me guidance, strength and courage

to finish this paper.

-RESEARCHER

2

THE CENDANT CORPORATION ACCOUNTING SCANDAL BCOM21

INTRODUCTION

This

research

is

about

CENDANT

CORPORATION

accounting

irregularities. Cendant Corporation was a New York-based provider of business and consumers services, primarily within the real state and travel industries. In 2005 and 2006, Cendant broke up and spun off or sold its constituent business. Although the company was base in New York City, the majority Cendant’s headquarters employees were located in Parsippany-Troy Hills, New Jersey. The last CEO of Cendant was Henry Silverman. CENDANT CORPORATION was a product of Hospitality Franchise Systems (HFS) and CUC (Comp-U-Card) International Corporation, merge which was formed in December 1997. Accounting irregularities involve inflating of company’s operating income. The scheme was driven by senior management’s determination that CUC would always meet the earnings expectation of Wall Street Analysts and fueled by disregard for any obligation that the earnings reported needed to be “real”.

3

THE CENDANT CORPORATION ACCOUNTING SCANDAL BCOM21

SUMMARY

On May 27, 1997, the board of directors of HFS, Inc. and CUC International INC. approved a merger agreement that formed Cendant Corp., a conglomerate the specialized in travel and shopping-club memberships and internet marketing. Its divisions include Avis rental cars; the Howard Johnson, Days Inn, and Ramada Hotel chains. The combination was billed as a merger of equals. Henry Silverman, CEO of HFS, Inc., was selected as Cendant’s president and CEO, while Walter Forbes, CEO of CUC International Inc., was selected as the company’s Chairman of the board. The merger was finalized in December, and Cendant's stock started trading on December 17, 1997, closing that day at $32.62. Following the merger, the company enjoyed immediate success and on April 6, 1998, its share price rose to a high of $41.69. The company was in the midst of many acquisitions, including the recently negotiated stock-and-cash acquisition of American Bankers Insurance Group. Unfortunately, the company was not progressing as well as the market believed. On April 9, 1998, the company announced that three former CUC executives were leaving the company, including Cosmo Corigliano, CUC's chief financial officer, and Amy Lipton, CUC's general counsel. During 1995, 1996, and 1997 the management of CUC booked phoney revenues in order to meet Wall Street’s expectations for quarterly earnings. The 4

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...﻿CASE PREPARATION CHART
Student Name
Student ID
Submission date
Case title
Alza corporation: A case study concerning R&D accounting practices in the pharmaceutical industry
Section
ASSESSMENT
To be filled by facilitator
Components
Scores
Scores
1 mark
2 marks
3 marks
4 marks
Completeness of case chart
Case chart is incomplete
Some of the case chart requirements are met satisfactorily.
Most of the case chart requirements are met satisfactorily.
All case chart requirements is met satisfactorily.
Submission
On-time submission
N/A
N/A
N/A
TOTAL
Case analysis
STAGE 1
Issues
Explain the main issues underlying the case. Place extra attention on the what, why and when.
The main issue in this case is the manipulation of account by ALZA Pharmaceuticals Corporation through the arrangement of TDC and Crescendo. In this case, TDC and Crescendo would have been classified as Variable Interest Entities of ALZA Pharmaceuticals Corporation under certain condition. Alza Pharmaceutical Corporation use the off-balance sheet financing techniques to funds its R&D activities. However, ALZA Pharmaceuticals Corporation’s financial statement failed to reflect economic reality through overstating revenues and net income. First, ALZA did not include the assets, liabilities, equity, revenue or expense account of TDC and Crescendo to consolidated financial...